SINGAPORE (June 4): While Valuetronics Holdings’ FY20 earnings of HK$178.9 million (S$32.5 million) may have exceeded CGS-CIMB analyst Ngoh Yi Sin’s expectations, the company’s distribution per share (DPS) of 14 Hong Kong cents came in lower than expected.

In a Wednesday report, Ngoh says heightened trade tensions between the US and China could result in accelerated shifts of supply chain out of the Middle Kingdom. She also sees potential risks from its consumer lifestyle and selected Industrial and Commercial Electronics (ICE) customers, ICE in particular, as 41% of its sales delivered to North America are still subject to tariffs.

“We note that ICE demand remains resilient, while CE sales have been impacted by global consumer spending,” she says.

Ngoh has cut Valuetronics’ FY21-22’s estimated earnings per share (EPS) by 3.6% to 32.4% to reflect potential revenue loss in FY21, “in line with management’s guidance of a significantly weaker FY21F than FY20”.

Vietnam, on the other hand, is on track with the company’s expansion plans. Valuetronics has started the trial production at its second 4,000 sqm facility in Vietnam in May 2020. It expects mass production at its own Vietnam campus to commence in 4QFY3/22, with estimated capital expenditure of HK$200 million.

“We think the alternative manufacturing footprint will be beneficial in the longer term to gain new customers,” says Ngoh.

On this, Ngoh has downgraded the stock to “reduce” from “hold” with a higher target price of 53 cents from 49.6 cents, on weaker near-term earnings, and lack of catalysts.

“Upside risks could come from customer gains and easing trade tensions. We see a more attractive entry level closer to $0.55, supported by its $0.44/share net cash (as of end FY20) and implied 6% yield,” she says.

As at 4.16pm, Valuetronics shares are changing hands 5.6% down, at 59 cents.